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Edited version of private ruling
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Ruling
Subject: Interest expenses
Are you entitled to a deduction for the whole of the interest incurred on a loan held in joint names with your spouse, when the borrowed funds have been invested in your name only?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You borrowed funds in order to purchase income-producing shares in listed companies.
The loan is held jointly by you and your spouse.
Since that time, you have bought and sold a number of shares.
The proceeds of your sales have been used to buy more shares, or to pay off the loan.
The loan is only used to acquire shares.
You are the sole owner of the shares.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature or relate to the earning of exempt income.
Where funds advanced under an investment loan are used to purchase an income producing asset, interest that accrues on the principal sum is deductible under section 8-1 of the ITAA 1997. In the case of an investment in shares if there is a reasonable expectation of deriving dividend income, interest incurred on a loan to purchase shares for this purpose will satisfy section 8-1 of the ITAA 1997 and therefore is deductible.
Taxation Ruling TR 93/32 sets out the Commissioner's view regarding rental properties and the division of net income or loss between co-owners. The underlying principles of this ruling can be applied to other income producing assets.
TR 93/32 explains that the income or loss from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title. Where the taxpayers are related, for example, husband and wife, the equitable right is presumed to be exactly the same as the legal title.
In applying the principles extracted from TR 93/32, you are able to use the funds from a joint investment account to purchase income producing assets under your name only.
You are the sole owner of the income producing assets and therefore any income earned from them will be assessable to you under section 6-5 of the ITAA 1997.
Therefore, you are also entitled to claim a 100% deduction under section 8-1 of the ITAA 1997 on the interest charged on the investment loan, despite the fact that the loan account is to be held jointly with your spouse.
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